1. Why determine the value of a business?
- To support changes in the ownership structure:
• Shareholders or investors want detailed knowledge of the company’s current position before making a final decision
• Future opportunities and growth potential
• In particular, unexpected liabilities, e.g. tax issues and potential risks of litigation or disputes
- To prepare for an initial public offering (IPO):
• The securities market imposes certain requirements and rules on the types of information a company must disclose in its IPO documents (known as the prospectus)
• The business valuation process must identify and set out the company’s core operations as well as its opportunities and risk factors.
• The success of an IPO depends greatly on preparation. Without thorough preparation, the parties involved in the IPO may face difficulties and the company may be significantly undervalued at listing, which would harm the interests of its owners.
- To improve the company’s overall performance when operations are inefficient:
• The business valuation process objectively assesses the company’s strengths and weaknesses.
• By identifying the issues or areas in which the company’s weaknesses are most evident, business valuation is a tool that helps the company objectively assess or “unlock” opportunities and potential and create value for current and future shareholders.
2. Benefits of business valuation
• The benefit of the business valuation process is its ability to compile, assess, analyse and reconcile the company’s historical data and future prospects in an accurate and comprehensive report.
• By identifying the company’s strengths, weaknesses and core values, business valuation becomes an effective tool that helps the company realise opportunities and create value for shareholders and future investors.
• Where necessary, it sets out plans and recommendations to prepare for pre- and post-IPO activities
• It identifies necessary changes to the financial system, shareholder structure or corporate structure, as the process creates an open forum in which the company can discuss in depth and consider whether these structures are consistent and beneficial for its future
• It supports the Board of Directors and the Board of Management in making difficult decisions, such as selling or discontinuing unprofitable or non-core activities in order to focus on high-value activities
• It provides analyses of the company’s governance and management systems, together with capability assessments of certain key personnel positions
• A comprehensive and successful business valuation project brings positive results, as the team of consultants will identify the company’s most efficient areas of business and propose solutions to maximise those strengths and create value for shareholders and business owners
3. Deliverables
- The business valuation report or certificate covers the following:
- The company’s current position and present value
- Shareholders’ expectations and the areas that may affect the value of their holdings
- A comprehensive and in-depth analysis of the company’s current position and future development trends
- Identification of issues and areas of weak performance
- Ways and options to realise opportunities and potential and create value for future investors.
- Weaknesses in structure, management, organisation and marketing policy, and instability in the tax structure
- The expectations and requirements of the market for a company seeking to list on the stock exchange
- Recommendations for advice and support throughout the process to help the company close the gaps in its operations.
If the company wishes to transfer or issue additional shares, it will need:
– A company information summary (offering memorandum) to:
– Present to shareholders and investors the true value of the company at the relevant time
– Give a clear picture of the company’s development prospects so that investors and shareholders can forecast the potential and returns of their investment. If the company is preparing to offer shares to the public, a “Prospectus” is also required. The content of a prospectus is essentially similar to that of an offering memorandum, but follows the template of the State Securities Commission or of the stock exchange on which the shares are to be listed.
